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Thanks to one big problem with the economy, it suddenly matters that no one believes a word Trump says

U.S. President Donald Trump holds a joint news conference with Norwegian Prime Minister Erna Solberg in the East Room of the White House in Washington, U.S., January 10, 2018.

source

REUTERS/Jonathan Ernst

The Trump administration has a rather distant
relationship with telling the truth.

After some missteps at the World Economic Forum, we now
know that when it comes to the sliding US Dollar, that lack of
familiarity with the truth has consequences.

It may mean that the administration has limited control
of the currency.

No one trusts the Trump administration to tell the truth, and
that has become a serious problem.

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It is not a problem because of anything having to do with North
Korea, or Robert Mueller, or an upcoming to deal to save the
livelihoods of young Americans granted citizenship under DACA.

It is a problem because the US dollar is falling, and over the
last few days the administration has proven that its words can do
very little to stop its cascade.

It is a problem because, in the cloistral world of foreign
exchange and currency, words actually mean things. Words, from
the right people can change the way money flows around the face
of the planet. And now, in the United States, the right people
simply cannot be believed.

One day in Davos

"Obviously a weaker dollar is good for us as it relates to
trade and opportunities," Mnuchin said at a panel at the World
Economic Forum in Switzerland.

What Mnuchin was signaling (and here on Wall Street we live for
signals, even the faintest ones), was an end to the US's policy
on the dollar going back to the Clinton administration - a
titanic shift. After that, the
dollar fell to a three-year low after weeks of selling on
fears that the administration might do nothing to stop it.

Michael van Dulken of Accendo Markets wrote in a note to clients
that Mnuchin's words had traders (naturally skittish creatures if
there ever were some) worried about a return to currency wars.

On Thursday, and again on Friday, Mnuchin tried to backtrack. His
boss, President Donald Trump, tried his hand at calm too.

"The dollar is going to get stronger and stronger, and ultimately
I want to see a strong dollar," Trump said, though in the past
his support for a strong dollar
has not been so certain.

Trump's assurances worked for a hot second, and then they did
not.
Currently, the dollar is continuing its trend down. You can see
how this would be an unfortunate circumstance during the World
Economic Forum. Trump was there to sell the idea that the US is
open for business- meanwhile, the dollar was saying that anyone
who buys America is buying a depreciating asset.

"'Words' in the world of FX do matter - the big turn in the
dollar cycle in 1985 was driven by the Plaza accord, and in 1995
by Treasury Secretary Robert Rubin's initiation of a strong
dollar policy," Deutsche Bank analysts wrote on Friday morning.
"We would argue the medium-term bear market in the dollar started
with the inauguration of President Trump and President Macron in
the US and France, respectively, last year. It has coincided with
a structural shift in the relative flow dynamics between the US
and the rest of the world."
It is here that we should note that currently money flows are
headed to Europe (to Macron) and away from the US (Trump).

There are a number of reasons for this that have little to do
with politics. Wall Street analysts have been saying that 2017
was a peak for the strong dollar cycle for months now. They'll
give you a bunch of economic nerd reasons, "- the sum of the
current account, portfolio balance, and foreign direct investment
flows - peaked last year," Deutsche Bank noted. Another financier
told me it was a function of central bank and petrodollar
rebalancing.

That may all be true, but I'll give you another reason. No one
trusts us anymore. No one believes a word these Trump people say,
not even when they try to unsay it.

Markets run on trust, markets run on trust, markets run on trust,
markets run on trust

source

Reuters / Kevin Lamarque

Americans have gotten used to taking
the words of their president with a grain of salt. Even during
the campaign, his surrogates were saying that he should be taken
"seriously, not literally," whatever that means.

That may work in the petty world of politics and popularity
contests, but this is Wall Street, and this is where that
nonsense stops. The world of markets is run on trust. The word
"credit," the power behind global financing, comes from the Latin
word for trust.

As Treasury Secretary, Steve Mnuchin should have at least one
power - the power to convey the economic thoughts of the Trump
administration. But he can't do that. He should be trusted when
he tries to do so. But he isn't. It's unclear if that's a
personal failing, a lack of talent for articulating his thoughts,
or if it's a direct response to the administration's policy.

If it is the latter there are two uncomfortable calculations Wall
Street must consider. One is that the administration actually
wants a weak dollar, and Mnuchin's ineptitude laid that bare for
all to see.

The other consideration is that the administration has no policy
on the dollar. This would be the height of incompetence, and yet
it would shock no one. In fact, it's totally plausible.

Bankers and traders are in some sense the world's plumbers. Their
job is to watch and facilitate the flows of money where it is
needed. They know where it's flowing heavily or has slowed to a
trickle, they know where it is blocked completely - stopped up by
bad policy or over-indebtedness or international politics. Most
of them, contrary to Hollywood's image of the thrill-seeking
trader, are incredibly risk-averse.

None of these plumbers, based on a reading of Wall Street
research following Mnuchin's mea culpa, see flows heading to the
US, strengthening the dollar in the near future. This is a
combination of the world of finance believing that conditions are
correct for a dollar slide, and the world of finance believing
that the Trump administration is unlikely to do anything to stop
it, contradicting Mnuchin and the president's statements. This is
a group of people that, aside from a few exceptions,
literally all wear the same tie.

For them, and so for all of us, it is a disaster that the Trump
administration cannot be counted on to clearly articulate its
policy goals. It is a disaster that when they do no one believes
them.
The administration's penchant for lies is messing with our money
now, and that matters.